Yue Yuen’s net income falls 58% in H1 as costumers shift to shorter, more volatile orders

In the first half of the year, Yue Yuen clearly felt the impact of its brand customers’ more cautious ordering policies. While revenue fell moderately by 2.2 percent to $3.97 billion, net income plummeted by 57.9 percent to $72 million. The manufacturing business, which produces for Nike, Adidas, Asics, New Balance and Salomon, among others, was under particular pressure. Here, revenue fell by 4.7 percent to $2.67 billion, while profit plummeted by 67.9 percent to $49.8 million. The contract manufacturer shipped 118.6 million pairs of shoes, 6.4 percent fewer than in the previous year. Higher prices could only partially offset the decline in volume: on average, they rose by 1.6 percent.

The figures for the first half of 2026 thus reveal a clear discrepancy: While revenue and production volume declined relatively moderately, profit plummeted. Behind this lies a problem that has been plaguing the contract manufacturer since the beginning of the year: Orders from its brand-name customers are becoming shorter-term, more volatile and thus more difficult to plan for. According to the company, this order volatility continued to increase in the second quarter.

Compared to the first quarter of fiscal year 2026, however, pressure on earnings did not intensify. In numerical terms, Yue Yuen generated approximately $1.99 billion in revenue in the second quarter and posted a net profit of about $36.8 million, compared to $1.99 billion and $35.2 million, respectively, in the first quarter.

Customers are placing orders on shorter notice

In light of inflation, macroeconomic uncertainty and customs risks, international brand customers are placing orders more cautiously and trying to align their inventory levels closely with actual demand. At the same time, order cycles are becoming shorter: While traditional production orders typically have a lead time of ten to 12 weeks, according to the company’s report, an increasing number of customers are demanding delivery times of only 30 to 45 days. Demand for smaller production batches with a greater variety of products has also increased significantly.

This makes it difficult for the world’s largest contract manufacturer of athletic shoes to maintain full capacity at its factories. In the second quarter, monthly fluctuations in orders increased, making decisions regarding the allocation of production capacity even more difficult. As a result, production across the plants was “highly uneven” in the first half of the year, which weighed on efficiency.

More employees, fewer shoes

At the same time, personnel costs rose by 2.5 percent to $1.07 billion in the first half of the year. In manufacturing, Yue Yuen increased its workforce by 1 percent to approximately 275,700, even though 6.4 percent fewer shoes were shipped. One reason for this was the ramp-up of newly built production facilities. Additionally, rising wages, overtime and other costs that could not be reduced as planned weighed on the bottom line.

This creates an unfavorable operational leverage: Yue Yuen must maintain staff and capacity for its customers but cannot consistently utilize them optimally, because of short-term and volatile orders. This explains why profitability came under significantly greater pressure than revenue.

Athletic/Outdoor remains under pressure

Weaker demand was evident in all product categories of the manufacturing business during the first half of the year. The most significantly affected segment was the key Athletic/Outdoor Shoes segment: Revenue fell by 5.1 percent to $2.07 billion and accounted for 52 percent of consolidated revenue, down from 53.6 percent in the prior year. The company generated $420 million in revenue from Casual Shoes & Sports Sandals, down 3.4 percent from the previous year. Revenue from Soles, Components & Others declined by 3.3 percent to $181 million.

So far, the production figures for the first half of the year show little sign of the demand boost that Yue Yuen had anticipated last fall in light of the ongoing athleisure trend and major sporting events. The Athletic/Outdoor segment in particular – which accounts for more than half of consolidated revenue – performed more weakly than the other product categories.

Pou Sheng improves profit

The retail business of the subsidiary Pou Sheng in Greater China performed better. In US dollars, revenue rose by 3.5 percent to $1.31 billion in the first half of the year, with exchange rates playing a role: In the reporting currency, the renminbi, revenue fell by 2.1 percent to RMB 8.96 billion. Nevertheless, Pou Sheng increased its profit by 29.9 percent to RMB 243.7 million (approximately $35.5m at the average H1 exchange rate). Contributing factors included stricter inventory and discount management, as well as the ongoing streamlining of the store network. As of the end of June, Pou Sheng was operating 3,110 stores, 200 fewer than at the end of 2025. The focus is thus less on generating additional revenue than on improving the efficiency of the existing business.

No relief in sight for H2

There are no signs of relief so far. Uncertainty over demand from brand customers, already present after the first quarter, persists. Inflation and macroeconomic uncertainty are likely to continue weighing on consumer spending, while the predictability of short-term orders in particular has not improved. “The visibility of near-term order demand [is] yet to improve,” the semiannual report states.

Yue Yuen therefore intends to flexibly adjust the ramp-up of new production lines to actual demand and to coordinate orders, production planning and staffing more closely. The key factor for the second half of the year will thus be whether orders from brand customers become more predictable again and whether the contract manufacturer can utilize its production capacity more evenly.